Newt Gingrich on Tax Reform

Former Republican Representative (GA-6) and Speaker of the House

Change tax policies to make US companies competitive abroad

We need to change our tax policies to make American companies more competitive around the world. One example is the tax incentives for corporate headquarters location. There was a significant tax advantage for Daimler to acquire Chrysler but there was a
significant disadvantage for Chrysler to acquire Daimler. By remaining blind to the consequences of our tax code, we are favoring market forces that will gradually lead to more takeovers of American companies by foreign firms (e.g. Siemens taking over
Westinghouse). The European Union now blocks American mergers even between American companies (e.g., Honeywell & General Electric). If we want the US to be the multinational headquarters of the world, we are going to have to rewrite our tax laws so that
there are no tax disadvantages to an American firm acquiring an overseas competitor. Moreover, we might want to consider creating an incentive for American firms to make acquisitions so the US becomes the center of executive talent in the world.

Create tax incentives that encourage R&D

We should create tax incentives that encourage research and development. The 50 percent research and development tax credit should be made permanent and be applied to companies that are willing to take on government’s “grand challenges” (for
example, the first inhabitable moon base). Investments in new technology and machinery should also be expensed 100 percent in the first year.
The present complex code of depreciation makes no sense in a time of rapid change. It is better to encourage overinvestment in new technology and new machinery to keep
American workers at the cutting edge of opportunity. Our goal should be to ensure that American workers have newer, better, and more productive equipment than their foreign counterparts.

Eliminate the capital gains tax to encourage investing

We must eliminate the capital gains tax to encourage investing. Federal Reserve Chairman Alan Greenspan testified that the most economical rate for taxing capital gains is zero because
tax-free capital gains will encourage much greater risk-taking and lead to more entrepreneurial behavior. This leads to more prosperity, a bigger economy, and better jobs.

Opposing taxes is a key conservative value

One of the key values of most conservatives is opposition to tax increases. This is not only right in itself, but helpful as well, because it protects us from all sorts of temptations that the liberals love to place before us.
Conservatives are elected by taxpayers who believe they already pay too many taxes, who want smaller and more efficient government, and who wish to be able to keep more of the money and property they have earned by the sweat of their brows.
They feel betrayed when their own leaders are maneuvered into supporting bigger and ever more intrusive government by agreeing to raise taxes.
If they wanted that, they would have voted for the liberals in the first place.

Input of public judgement for any major tax reform

The principle of keeping the people on it all the way is my contribution to the great tax reform debate. Some intelligent and persuasive people want a flat income tax. Some other intelligent and persuasive people want to see a sales tax replace any
income tax. So my goal in the great tax reform debate is to make sure that it is carried way beyond the experts and advocates and gets a thorough airing in the minds of the voters. I want them to tell me what they think about this question.
There is a distinction between public judgment and public opinion. The latter is what people tell pollsters off the top of their heads. Public judgment, by contrast, is what develops over time when people pay
attention to something and discuss it with their friends and neighbors. It takes a long time to develop and involves a complex social interaction that is largely unplanned and unprogrammable.

EITC is an invitation to fraud

Consider the Earned Income Credit program, one of the biggest scandals in the IRS. This program provides cash to people below a certain income level. The Clinton Administration’s own estimates of waste, fraud, and error indicate that the program has a
21% rate of error. That means that $1 out of every $5 distributed is wrong. There are big problems in a 21% error rate in a government program that gives away money. First it teaches people to commit fraud. A society in which the dishonest gain more
benefit than the honest is one whose very fabric is being frayed. Second, it points up a grotesque double standard in the inner workings of the IRS: when you send them your money, they punish you for anything less than 100% accuracy,
but when they send your money to someone else, they accept their own massive error rate. The IRS sends out an estimated $5 billion annually in wrong payments under the Earned Income Tax program. That is enough money to abolish the entire death tax.